How Tolerable is Tolerable Risk?by Carl Marx of http://financialsupport.weebly.com

IntroductionThe introduction of the principles of risk assessment into occupational health, safety and environmental legislation by the introduction of the duty of care principle into these laws worldwide caused that the managing of these factors required a new paradigm. These principles imply that a certain level of self-regulation will be possible under the new legislative regime.

For any level of self-regulation to be effective all the stakeholders must have a clear understanding of what is expected of them in order to comply with their individual statutory obligations. Residual risk can be defined as the risk that remains after taking into account the controls that have been applied. Residual risk differs from tolerable risk in that the controls that have been applied may not be suitable and sufficient to reduce the risk to tolerable levels.

Tolerable risk

Tolerable risk is the risk remaining after suitable and sufficient controls have been applied to significant hazards that have been identified, assessed, communicated to the appropriate stakeholders and sanctioned after proper evaluation. The concept of reducing the residual risk to tolerable levels is nothing new, the fact that, for all practical purposes, the products, processes or services we utilize are not risk-free is tolerated by all of us.

Determining Tolerability

In business and financial management determining the level of tolerability is a matter of calculating the internal rate of return (IRR) or the net present value (NPV) and evaluating this against the probability of achieving these returns. The dilemma for occupational health, safety and environmental professionals is to establish the magnitude of what will be a tolerable risk level in the particular working environment that we work in.

The company responsible and accountable for managing the risk or controlling the hazard must define at what level tolerable risk will be tolerable. The determination that the risk is at a tolerable level should be made in light of an adequate assessment of the potential frequency of occurrence and an understanding of the potential severity of the outcome associated with the frequency, as well as the exposure levels anticipated. This assessment should not only consider the normal operating conditions, but should take cognizance of any abnormal and emergency situations that may arise.

It is also important to ensure that the very low frequency disasters be considered when determining the residual risk levels. These residual risk levels should then be clearly and unambiguously be communicated to all stakeholders that may be affected by it. In addition, the relevant Government agency expectations and the public perception should typically serve to reduce the tolerance levels for risk in any particular company.

During the determination of the tolerability or not of a particular risk, financial as well as non-financial issues should be considered by the representative team. Tolerable in this instance does not mean acceptable, it only refers to the willingness to live with a risk so as to secure certain benefits in the confidence that the risk is being properly controlled.

Legislative standards establish minimum levels of performance, often leaving some level of risk remaining. If this residual risk is high (relative to the affected company risk tolerance levels) after applying controls established by legislation, the affected company should implement controls beyond the requirements of the legislation to further decrease the frequency and/or resulting severity of an adverse occurrence. All companies should establish company specific occupational health and safety and environmental standards, complying with at least the established legislative standards. The legislative standards for health, safety and environment normally reflect the general expectations of society pertaining to the specific industry and therefore it would not be justifiable to relate for example tolerable risk in the transport industry to tolerable risk in the mining industry.

It is a known fact that the environment we live in is not risk-free. A number of individuals tend to use the term acceptable risk for this state of affairs. This term must be rejected from the philosophical point of view that no negative risk is acceptable, although the individual or society may choose to live with a certain level of risk because of the perceived benefits. In practice mankind are always seeking to reduce the risks and what would be tolerable to one generation may become unacceptable to the next.

Conclusion

A widely expressed fear is that the tolerable risks once established would fix the level of risk forever and would not encourage innovation and further risk reduction on a continuous improvement spiral. This is not the case, and the current tolerable risk level should be seen as a benchmark against which the level of risk is judged for future improvements. International experience has shown that by using the risk-based approach, many of the problems of setting the tolerable level of risk can be overcome by meeting the expectations of employer, employee, the society and the legislator. However, the risk-based approach alone will not produce sound standards.

There is the need to plan tasks carefully, making certain that the objectives is clear and that all the necessary inputs into the working group are readily available. The introduction of risk assessment as a means to determine the priority of dealing with risks in the workplace is seen by some to be the magic wand that will remove all risks and responsibilities. The truth of the matter is that if this tool is utilized incorrectly by inappropriately trained people it may cause more negative outcomes than without it.